The decision has come as a big relief to companies, who are battling with the need to reconcile their books to the new Companies Law, the new IFRS-based accounting standards, which are coming into force from 1 April 2016, and the Goods and Services Tax (GST) if it gets Parliament nod in the Budget session.
The panel has also acknowledged these difficulties that the companies may face while recommending deferment of ICDS. ICDS was notified by the Central government in March 2015.
Tax experts say it is too cumbersome to maintain separate books solely for tax calculation purpose.
"Deferment of ICDS is very positive as a lot of our clients (corporate and businesses) are struggling with how to reconcile with new accounting standard (Ind-AS) and now another accounting standard for income tax," says Pranay Bhatia, partner, direct tax, BDO India.
"ICDS would mean two parallel accounting exercises, which could result in multiplicity of records, additional compliance requirements, etc. It would create confusion with regard to interpretation of particular standards," says Vikas Gupta, Partner, Nangia & Co.
He added that the premise of the government when the entire (ICDS) exercise was started was to have a simple tax accounting method. But ICDS is creating more confusion.
Many experts feel that ICDS is a set of norms unnecessarily 'forced' on companies - especially when the government is already moving ahead with Ind-AS, which more or less addresses the issue that ICDS is trying to address.
Nidhi Goyal, Managing Director, Protiviti, says the main issue that ICDS tries to address is that of companies deferring certain income by using completion method accounting instead of percentage completion method. "Though the Ind-AS also talks about percentage completion method for accounting of income, the reason the government may have gone ahead with ICDS is that Ind-AS would not be applicable for many companies before 2018."
Ind-AS, the new set of accounting standards based on the International Financial Reporting Standards (IFRS), is being implemented from 1 April 2016 in phased manner.
In the first phase, it would be applicable on listed companies in India or outside India having net worth of Rs 500 crore or more, unlisted companies having net worth of Rs 500 crore or more, and the holding, subsidiary, joint venture or associate companies of the earlier mentioned companies.
The new accounting standard would be applicable on banks and insurance companies from April 2018.
Pranav Sayta, Tax Partner, Ernst & Young, says that all the ICDS does is prepone the companies' income to 'unfairly' expedite the tax collection for the government. "If your objective is to have a fair accounting standard and not have accounting standards that are in favour of tax collector, then we should stick to accounting standards that are generally accepted worldwide or in India," says Sayta.
Now, it is to be seen if at all the government implements the recommendation of Easwar Committee and indeed defers ICDS, which was supposed to have been implemented from 1 April 2015.